TIDMARW
RNS Number : 0330T
Arrow Global Group PLC
12 November 2019
12 November 2019
Arrow Global Group PLC
Results for the nine months ended 30 September 2019
Strong cash generation and continued focus on developing the
fund management business
Arrow Global Group PLC (the "Company", and together with its
subsidiaries the "Group"), a leading European investor and asset
manager in secured and unsecured defaulted and non-core loan
portfolios and real estate, announces its results for the nine
months ended 30 September 2019.
Key Highlights
-- Free cashflow grew 14.7% to GBP174.4 million (Q3 2018: GBP152.0 million)
-- Profit before tax increased by 65.6% to GBP42.4 million (Q3 2018: GBP25.6 million)
-- Underlying profit before tax decreased 5.4% to GBP50.4
million (Q3 2018: GBP53.3 million) - including a 15.1% increase in
finance costs relating to deferred consideration costs and IFRS
16
-- Cost efficiency program on track - actions to deliver 40% of run rate savings complete
-- Strong focus on the development of the fund management
business with the build out of AGG Capital Management
-- Trading is in line with market expectations for the full year
Group financial highlights 30 September 30 September Change
2019 2018 %
------------------------------- ------------- ------------- ----------
Portfolio purchases (GBPm) 221.9 200.1 10.9
Core collections (GBPm) 312.5 288.5 8.3
Total income (GBPm) 256.9 255.3 0.6
Third party AMS income (GBPm) 68.7 63.3 8.5
Operating profit (GBPm) 82.8 79.3 4.4
Profit before tax (GBPm) 42.4 25.6 65.6
Underlying profit before tax
(GBPm) 50.4 53.3 (5.4)
Underlying LTM ROE % 29.5 33.4 (3.9)ppts
Basic EPS (p) 17.1 11.7 46.2
Leverage (x) 3.7 3.8 (0.1x)
84-month ERC (GBPm) 1,725.8 1,635.6 5.5
120-month ERC (GBPm) 2,036.7 1,968.9 3.4
Commenting on today's results, Lee Rochford, Group Chief
Executive Officer of the Company, said:
"Returns in the investment business remain attractive and
collections and cash generation both increased strongly during what
is traditionally a quieter quarter.
"The primary focus of the Group continues to be to build out our
fund management capabilities and good progress has been made
following the formation of AGG Capital Management Limited announced
in the Group's interim results. Our clear objective is to build a
fund management business which will drive substantial growth in AMS
revenues and, when combined with the cost efficiency programme,
will see the Group evolve to become a more capital light, high
margin business with less leverage.
"The Group's highly cash generative characteristics mean we
continue to have the flexibility to allocate capital between
investment for growth, dividends and deleveraging. We therefore
remain confident that we can continue to grow the business, reward
shareholders and finish the year within our new targeted lower
leverage range of 3.0x-3.5x."
Conference call
There will be a conference call for analysts and investors at
08.30 (UK time).
Investors and analysts wishing to dial-in to the call can
register using the following link:
https://bit.ly/2PcMZEm
Notes:
A glossary of terms can be found on pages 15 to 17. More details
explaining the business can be found in the Annual Report &
Accounts 2018 which is available on the Company's website at
www.arrowglobalir.net
For further information:
Arrow Global Group PLC
Duncan Browne, Head of Investor Relations +44 (0) 7925 643 385
Dbrowne@arrowglobal.net
FTI Consulting
Neil Doyle +44 (0)20 3727 1141 arrowglobal@fticonsulting.com
Tom Blackwell
Laura Ewart
Forward looking statements
This document contains statements that constitute
forward-looking statements relating to the business, financial
performance and results of the Group and the industry in which the
Group operates. These statements may be identified by words such as
"expectation", "belief", "estimate", "plan", "target", or
"forecast" and similar expressions or the negative thereof; or by
the forward-looking nature of discussions of strategy, plans or
intentions; or by their context. All statements regarding the
future are subject to inherent risks and uncertainties and various
factors could cause actual future results, performance or events to
differ materially from those described or implied in these
statements. Such forward-looking statements are based on numerous
assumptions regarding the Group's present and future business
strategies and the environment in which the Group will operate in
the future. Further, certain forward-looking statements are based
upon assumptions of future events which may not prove to be
accurate and neither the Company, the Group nor any other person
accepts any responsibility for the accuracy of the opinions
expressed in this document or the underlying assumptions. The
forward-looking statements in this document speak only as at the
date of this presentation and the Company and the Group assume no
obligation to update or provide any additional information in
relation to such forward-looking statements.
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND
OTHER COMPREHENSIVE INCOME
For the period ended 30 September 2019
Unaudited Unaudited
Unaudited Unaudited three months three months
nine months ended nine months ended ended ended
30 September 2019 30 September 2018 30 September 2019 30 September 2018
GBP000 GBP000 GBP000 GBP000
Continuing operations
Income from portfolio
investments at amortised
cost 142,703 149,837 47,696 53,694
Fair value gain on
portfolio investments at
FVTPL 27,634 10,609 6,510 4,501
Net impairment gains on
portfolio investments at
amortised cost and real
estate inventories 17,440 30,795 1,719 7,514
Income from real estate
inventories 118 - 118 -
------------------- ------------------- ------------------- -------------------
Total income from portfolio
investments 187,895 191,241 56,043 65,709
Income from asset
management and servicing 68,680 63,336 23,041 21,984
Profit on sale of property - 731 - 731
Other income 292 - 90 -
------------------- ------------------- ------------------- -------------------
Total income 256,867 255,308 79,174 88,424
------------------- ------------------- ------------------- -------------------
Operating expenses:
Collection activity costs (83,124) (90,331) (29,107) (30,391)
Other operating expenses (90,953) (85,668) (26,300) (30,923)
------------------- ------------------- ------------------- -------------------
Total operating expenses (174,077) (175,999) (55,407) (61,314)
------------------- ------------------- ------------------- -------------------
Operating profit 82,790 79,309 23,767 27,110
Net finance costs (40,394) (35,101) (13,884) (12,307)
Refinancing costs - (18,658) - -
Profit before tax 42,396 25,550 9,883 14,803
Taxation charge (10,177) (5,016) (2,008) (2,782)
------------------- ------------------- ------------------- -------------------
Profit after tax 32,219 20,534 7,875 12,021
=================== =================== =================== ===================
Other comprehensive income:
Items that are or may be
reclassified subsequently
to profit or loss:
Foreign exchange
translation difference
arising on revaluation of
foreign operations (1,402) 431 (769) 882
Movement on the hedging
reserve 38 (279) 95 96
------------------- ------------------- ------------------- -------------------
Total comprehensive income
for the period 30,855 20,686 7,201 12,999
=================== =================== =================== ===================
Profit attributable to:
Owners of the Company 30,010 20,489 7,906 12,008
Non-controlling interest 2,209 45 (31) 13
------------------- ------------------- ------------------- -------------------
32,219 20,534 7,875 12,021
=================== =================== =================== ===================
Basic EPS (p) 17.1 11.7 4.5 6.8
=================== =================== =================== ===================
Diluted EPS (p) 16.6 11.5 4.4 6.8
=================== =================== =================== ===================
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL
POSITION
As at 30 September 2019
Unaudited 30 September Unaudited 31 December Unaudited 30 September
2019 2018 2018
Note GBP000 GBP000 GBP000
Assets
Cash and cash equivalents 97,828 92,001 62,073
Trade and other receivables 98,132 94,206 80,245
Portfolio investments -
amortised cost 2 927,306 869,056 870,671
Portfolio investments - FVTPL 2 175,354 217,974 180,830
Portfolio investments - real
estate inventories 2 59,877 - -
Property, plant and equipment 27,542 7,761 6,846
Other intangible assets 38,388 44,264 44,448
Deferred tax asset 8,697 8,113 -
Goodwill 275,211 262,679 224,203
Total assets 1,708,335 1,596,054 1,469,316
======================= ====================== =======================
Liabilities
Bank overdrafts 3 2,477 2,696 3,624
Revolving credit facility 3 247,975 242,121 185,024
Derivative liability 642 502 77
Trade and other payables 215,291 197,657 149,314
Current tax liability 8,873 7,915 3,231
Other borrowings 3 3,384 11,635 13,468
Asset-backed loans 3 91,620 - -
Senior secured notes 3 916,096 926,340 916,060
Deferred tax liability 15,305 14,930 9,411
----------------------- ---------------------- -----------------------
Total liabilities 1,501,663 1,403,796 1,280,209
----------------------- ---------------------- -----------------------
Equity
Share capital 1,769 1,763 1,763
Share premium 347,436 347,436 347,436
Retained earnings 124,730 116,589 113,196
Hedging reserve (546) (584) (622)
Other reserves (274,956) (273,547) (274,486)
Total equity attributable to
shareholders 198,433 191,657 187,287
----------------------- ---------------------- -----------------------
Non-controlling interest 8,239 601 1,820
----------------------- ---------------------- -----------------------
Total equity 206,672 192,258 189,107
----------------------- ---------------------- -----------------------
Total equity and liabilities 1,708,335 1,596,054 1,469,316
======================= ====================== =======================
Note - the balance sheet has been presented on a reducing
liquidity basis, and prior periods have been represented
accordingly on this basis.
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the period ended 30 September 2019
Ordinary Other equity reserves Total Non-controlling interest Total
shares
GBP000 GBP000 GBP000 GBP000 GBP000
Balance at 1 January 2018 1,753 193,395 195,148 173 195,321
Impact of adopting IFRS 9 - (14,000) (14,000) - (14,000)
Impact of adopting IFRS 15 - (199) (199) - (199)
Balance post IFRS adjustments at
1 January 2018 1,753 179,196 180,949 173 181,122
Profit for the period - 20,489 20,489 45 20,534
Exchange differences - 431 431 - 431
Net fair value gains on cash flow
hedges - (355) (355) - (355)
Tax on hedged items - 76 76 - 76
--------- ---------------------- --------- ------------------------- ---------
Total comprehensive income for
the period - 20,641 20,641 45 20,686
Shares issued in the period 10 - 10 - 10
Repurchase of own shares - (2,509) (2,509) - (2,509)
Share-based payments - 2,384 2,384 - 2,384
Non-controlling interest on
acquisition - - - 1,645 1,645
Dividend paid - (14,156) (14,156) - (14,156)
Dividend paid by NCI - - - (43) (43)
Balance at 30 September 2018 1,763 185,556 187,319 1,820 189,139
Adjustment to IFRS 15 impact
through profit - (32) (32) - (32)
Balance post IFRS 15 adjustment
at 30 September 2018 1,763 185,524 187,287 1,820 189,107
--------- ---------------------- --------- ------------------------- ---------
Profit for the period - 9,512 9,512 - 9,512
Exchange differences - 2,141 2,141 - 2,141
Recycled to profit after tax - (1,202) (1,202) - (1,202)
Net fair value losses on cash
flow hedges - 64 64 - 64
Tax on hedged items - (26) (26) - (26)
Total comprehensive income for
the period - 10,489 10,489 - 10,489
Share-based payments - 883 883 - 883
Dividend paid - (7,002) (7,002) - (7,002)
Non-controlling interest on
acquisition - - - (1,219) (1,219)
Balance at 31 December 2018 1,763 189,894 191,657 601 192,258
Impact of adopting IFRS 16 - (947) (947) - (947)
Balance post IFRS adjustments at
1 January 2019 1,763 188,947 190,710 601 191,311
Profit for the period - 30,010 30,010 2,209 32,219
Exchange differences - (1,402) (1,402) - (1,402)
Net fair value losses on cash
flow hedges - 49 49 - 49
Tax on hedged items - (11) (11) - (11)
--------- ---------------------- --------- ------------------------- ---------
Total comprehensive income for
the period - 28,646 28,646 2,209 30,855
Shares issued in the period 6 - 6 - 6
Repurchase of own shares - (6) (6) - (6)
Share-based payments - 2,024 2,024 - 2,024
Non-controlling interest on
acquisition - - 5,429 5,429
Dividend paid - (22,947) (22,947) - (22,947)
Balance at 30 September 2019 1,769 196,664 198,433 8,239 206,672
--------- ---------------------- --------- ------------------------- ---------
UNAUDITED CONSOLIDATED STATEMENT OF CASHFLOWS
For the period ended 30 September 2019
Unaudited period ended Unaudited period ended
30 September 30 September
2019 2018
GBP000 GBP000
Net cash flows from operating activities before purchases of
portfolio investments 202,298 180,556
Purchase of portfolio investments (221,885) (203,150)
Net cash used in operating activities (19,587) (22,594)
Net cash used in investing activities (20,227) (61,630)
Net cash flows generated by financing activities 47,003 110,511
----------------------- -----------------------
Net increase in cash and cash equivalents 7,189 26,287
Cash and cash equivalents at beginning of period 92,001 35,943
Effect of exchange rates on cash and cash equivalents (1,362) (157)
----------------------- -----------------------
Cash and cash equivalents at end of period 97,828 62,073
----------------------- -----------------------
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL
STATEMENTS
1. Significant accounting policy updates
These financial statements are unaudited and do not include all
of the information required for full annual or interim financial
statements and therefore are not fully compliant with IAS 34 -
Interim financial reporting. These quarterly results should be read
in conjunction with the consolidated financial statements of the
Group as at and for the year ended 31 December 2018.
The annual financial statements of the Group are prepared in
accordance with IFRS as adopted for use in the EU, and therefore
comply with Article 4 of the EU IFRS Regulation. As required by the
Disclosure and Transparency Rules of the Financial Conduct
Authority, these financial statements have been prepared applying
the accounting policies and presentation that were applied in the
preparation of the Group's published consolidated annual report for
the year ended 31 December 2018, other than IFRS 16, which has been
applied for the first time this year. Changes to significant
accounting policies in 2019 have been disclosed below.
The consolidated financial statements of the Group for the year
ended 31 December 2018 are available upon request from the
Company's registered office at Belvedere, 12 Booth Street,
Manchester, M2 4AW and can also be found online at
www.arrowglobalir.net.
IFRS 16 is effective from 1 January 2019 and the Group has
adopted it from this date.
IFRS 16 replaces the previous standard IAS 17 'Leases', bringing
a number of leases on balance sheet, which were previously
off-balance sheet and accounted for as operating leases under IAS
17.
The Group is not required to restate comparatives on the initial
adoption of IFRS 16 and has therefore applied the modified
retrospective approach. The Group has applied exemptions where
appropriate for short-term leases of twelve months or less and low
value assets to be expensed and has also applied 'grandfathering'
to all IAS 17 judgements previously made. The incremental borrowing
rates used to measure lease liabilities at initial application
ranged between 4.2% and 7.2%.
The standard transition has led to a one-off opening 2019
reserves reduction of GBP0.9 million, a right-of-use asset
disclosed in property, plant equipment of GBP23.8 million, a lease
liability of GBP27.3 million and a release of lease accruals of
GBP2.6 million, all of which are disclosed in trade and other
payables.
The Group now holds a number of material real estate portfolio
investments which are being held for immediate sale or being
developed with a view to sell immediately once such development
work is completed. As such, the Group has assessed that it should
account for such investments under 'IAS 2 - Inventories'.
Under IAS 2 these investments are held at their original cost
plus any subsequent capital expenditure and are not subject to
revaluations on a periodic basis. Such assets will be assessed for
impairment at each reporting date, but any gain on these
investments will not be recognised until they are sold and
derecognised from the balance sheet.
2. Portfolio investments
The movements in portfolios investments were as follows:
Period ended 30 September 2019
Amortised FVTPL Real Estate Total
cost Inventories
GBP000 GBP000 GBP000 GBP000
As at 1 January 2019 869,056 217,974 - 1,087,030
---------- --------- ------------- ----------
Portfolios purchased
during the period 172,417 24,302 25,166 221,885
Transfer between categories 9,954 (44,021) 34,067 -
Collections in the period (264,002) (48,164) (328) (312,494)
Income from portfolio
investments at amortised
cost 142,703 - - 142,703
Fair value gain on portfolios
at FVTPL - 27,634 - 27,634
Income from real estate
inventories - - 118 118
Net impairment gains/(losses) 17,446 - (6) 17,440
Exchange and other movements (7,107) (2,371) 860 (8,618)
Portfolio restructure (13,161) - - (13,161)
As at 30 September 2019 927,306 175,354 59,877 1,162,537
========== ========= ============= ==========
Transfer between categories represents positions where the Group
has originally held one type of instrument relating to a portfolio,
and subsequently increased or changed its interest in the
portfolio, leading to the requirement to consolidate the underlying
structure onto the Group's balance sheet. This leads to a change in
the classification of the portfolio investment held. The 'portfolio
restructure' represents the restructure of a leveraged structured
deal to move to a de-levered position, and hence change the nature
of the holding whist extinguishing related liabilities.
Year ended 31 December 2018
Amortised FVTPL Real Estate Total
cost Inventories
GBP000 GBP000 GBP000 GBP000
As at 1 January 2018 920,578 30,889 - 951,467
Impact of adopting IFRS
9 at 1 January 2018 (93,734) 76,734 - (17,000)
---------- --------- ------------- ----------
Brought forward after
impact of IFRS 9 opening
adjustment 826,844 107,623 - 934,467
Portfolios purchased
during the period 169,514 93,836 - 263,350
Portfolio additions from
acquired entities 3,339 8,514 - 11,853
Collections in the period (387,699) (23,889) - (411,588)
Income from portfolio
investments 188,862 5,070 - 193,932
Fair value gain on portfolios
at FVTPL - 24,745 - 24,745
Net impairment gain 50,727 - - 50,727
Exchange and other movements 17,469 2,075 - 19,544
---------- --------- ------------- ----------
As at 31 December 2018 869,056 217,974 - 1,087,030
========== ========= ============= ==========
Period ended 30 September 2018
Amortised FVTPL Real Estate Total
cost Inventories
GBP000 GBP000 GBP000 GBP000
As at 1 January 2018 920,578 30,889 - 951,467
Impact of adopting IFRS
9 at 1 January 2018 (93,734) 76,734 - (17,000)
---------- --------- ------------- ----------
Brought forward after
impact of IFRS 9 opening
adjustment 826,844 107,623 - 934,467
Portfolios purchased
during the period 134,283 65,845 - 200,128
Portfolio additions from
acquired entities 2,409 8,514 - 10,923
Collections in the period (270,973) (17,540) - (288,513)
Income from portfolio
investments at amortised
cost 144,767 5,070 - 149,837
Fair value gain on portfolios
at FVTPL - 10,609 - 10,609
Net impairment gain 30,795 - - 30,795
Exchange and other movements 2,546 709 - 3,255
As at 30 September 2018 870,671 180,830 - 1,051,501
========== ========= ============= ==========
3. Borrowings and facilities
30 September 31 December 30 September
2019 2018 2018
GBP000 GBP000 GBP000
Senior secured notes (net of transaction fees of GBP13.3m, 31
December 2018: GBP14.4m, 30
September 2018: GBP15.3m) 916,096 926,340 916,060
Revolving credit facility (net of transaction fees of GBP3.9m, 31
December 2018: GBP4.0m,
30 September 2018: GBP3.3m) 247,975 242,121 185,024
Asset backed loan (net of transaction fees of GBP1.6m) 91,620 - -
Bank overdrafts 2,477 2,696 3,624
Other borrowings 3,384 11,635 13,468
------------- ------------ -------------
Total borrowings 1,261,552 1,182,792 1,118,176
============= ============ =============
Amount due for settlement within 12 months 274,923 259,045 198,575
Amount due for settlement after 12 months 986,629 923,747 919,601
------------- ------------ -------------
1,261,552 1,182,792 1,118,176
============= ============ =============
Asset Backed Securitisation
On 30 April 2019 the Group entered into a GBP100m non-recourse
committed asset backed securitisation facility with an advance rate
of 55% of 84-month ERC. On the same date, the Group sold GBP137m of
ERC into AGL Fleetwood Limited, a wholly owned Group subsidiary and
borrowed an initial amount of GBP75m non-recourse funding at Libor
+3.1%, under the facility. On 31 July 2019 the Group sold a further
GBP44m of ERC into AGL Fleetwood Limited and subsequently borrowed
an additional GBP25m non-recourse funding on the same terms under
the facility. The facility has a five-year term comprised of an
initial two-year revolving period followed by a three-year
amortising period with an option to extend the revolving period by
one year subject to lender consent.
Revolving credit facility
On 26 February 2019, the maturity of the facility was extended
by one year to 4 January 2024 with no change in margin.
4. Acquisition of subsidiary undertakings
On 8 April 2019, the Group acquired 100% of the share capital of
Drydens. Drydens is a provider of legal services, the acquisition
of which has and will broaden the Group's UK range of servicing
capabilities and skills across consumer and commercial litigation,
probate and insolvency. The total undiscounted consideration for
the acquisition was GBP11,115,000 (including deferred and
contingent consideration).
Contingent consideration is payable at various times within two
years from completion of the transaction upon the satisfaction of
three mutually exclusive conditions which are based upon the
business achieving certain targets around future volumes and the
successful migration of Group account.
An intangible asset of GBP688,000 has been recognised at
acquisition, being the fair value (after appropriate discounting)
of expected cash flows arising from existing customer
relationships.
Goodwill of GBP14,519,000 was created as a result of this
acquisition. The primary reason for the acquisition was to broaden
the Group's range of servicing capabilities in the UK.
In the period from acquisition to 30 September 2019, Drydens
contributed income of GBP2,508,000 and profit after tax of
GBP696,000 to the consolidated results for the period. If the
acquisition had occurred on 1 January 2019, Group total income
would have been higher by an estimated GBP1,167,000 and profit
after tax would have been lower by an estimated GBP24,000.
ADDITIONAL INFORMATION (UNAUDITED)
'Underlying profit' is considered a key measure in understanding
the Group's ongoing financial performance.
Adjusting items are those items that management deem by virtue
of their size, nature or incidence (i.e. outside the normal
operating activities of the Group) to not be representative of the
ongoing performance of the Group and these items are excluded from
underlying profit.
Reconciliation of reported to underlying costs
Period ended 30 September 2019 Period ended 30 September 2018
Reported Adjustments Underlying Reported Adjustments Underlying
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Continuing operations
Income 256,867 - 256,867 255,308 - 255,308
---------- ------------ ----------- ---------- ------------ -----------
Operating expenses
Collection activity costs (83,124) - (83,124) (90,331) 920 (89,411)
Other operating expenses (90,953) 7,984 (82,969) (85,668) 8,135 (77,533)
---------- ------------ ----------- ---------- ------------ -----------
Total operating expenses (174,077) 7,984 (166,093) (175,999) 9,055 (166,944)
---------- ------------ ----------- ---------- ------------ -----------
Operating profit 82,790 7,984 90,774 79,309 9,055 88,364
Net finance costs (40,394) - (40,394) (53,759) 18,658 (35,101)
Underlying profit before tax 42,396 7,984 50,380 25,550 27,713 53,263
Taxation charge (10,177) (1,704) (11,881) (5,016) (5,310) (10,326)
---------- ------------ ----------- ---------- ------------ -----------
Underlying profit after tax 32,219 6,280 38,499 20,534 22,403 42,937
Non-controlling interest (2,209) - (2,209) (45) - (45)
---------- ------------ ----------- ---------- ------------ -----------
Underlying profit attributable to
owners of the Company 30,010 6,280 36,290 20,489 22,403 42,892
========== ============ =========== ========== ============ ===========
Underlying Basic EPS (p) 20.6 24.5
=========== ===========
Underlying effective tax rate 23.6% 19.4%
=========== ===========
Adjusting items in the period relate to business acquisition
related costs of GBP1.7 million, costs related to the expansion of
the Group fund management business of GBP1.0 million and other
costs of GBP5.3 million related to the Group's simplification
programme, including redundancy and IT decommissioning costs.
Prior period adjusting items within collection activity costs
and other operating expenses in the period related to 'One Arrow'
costs of GBP6.0 million and business acquisition and other costs of
GBP3.1 million.
Financing costs adjusting items in the prior period relate to
costs associated with restructuring the Group's long-term
financing.
The adjusted EBITDA reconciliations for the periods ended 30
September 2019 and 30 September 2018 are shown below:
30 September 30 September
2019 2018
GBP000 GBP000
Reconciliation of net cash flow to adjusted EBITDA
Net cash used in operating activities (19,587) (22,594)
Purchase of loan portfolios 221,885 203,150
Income taxes paid 9,091 6,505
Working capital adjustments 6,367 1,769
Amortisation of acquisition and bank facility fees 72 206
Proceeds from sale of property - 3,759
Adjusting items 7,984 9,055
Adjusted EBITDA 225,812 201,850
------------- -------------
Reconciliation of core collections to EBITDA
Income from loan portfolios including revaluations 187,895 191,241
Portfolio amortisation 124,599 97,272
Core collections (includes proceeds from disposal of loan portfolios) 312,494 288,513
Other income 68,972 63,336
Operating expenses (174,077) (175,999)
Depreciation and amortisation 14,509 10,696
Foreign exchange losses/(gains) 660 (100)
Amortisation of acquisition and bank facility fees 72 206
Disposal of intangible asset 2,051 -
Share-based payments 2,024 2,384
Proceeds from sale of property - 3,759
Adjusting items 7,984 9,055
Provision releases (8,877) -
Adjusted EBITDA 225,812 201,850
------------- -------------
Reconciliation of Operating Profit to EBITDA
Profit after tax 32,219 20,534
Underlying net finance costs 40,394 35,101
Taxation charge on ordinary activities 10,177 5,016
Adjusting financing costs - 18,658
------------- -------------
Operating profit 82,790 79,309
Portfolio amortisation 124,599 97,272
Depreciation and amortisation 14,509 10,696
Foreign exchange losses/(gains) 660 (100)
Amortisation of acquisition and bank facility fees 72 206
Disposal of intangible asset 2,051 -
Share-based payments 2,024 2,384
Profit on sale of property - (731)
Proceeds from sale of property - 3,759
Adjusting operating expenses 7,984 9,055
Provision releases (8,877) -
Adjusted EBITDA 225,812 201,850
------------- -------------
The table below reconciles the reported profit for the period to
the free cash flow result. For completeness we also split out other
adjusting items.
Reconciliation of profit after tax to the free cash flow
result
Reported profit Adjusting items Underlying Other items Free cash flow
Income (4) profit
GBP000 GBP000 GBP000 GBP000 GBP000
Income from
portfolio
investments at Collections in
amortised cost 142,703 - 142,703 169,791 312,494 the period
Fair value gain
on portfolio
investments at
FVTPL 27,634 - 27,634 (27,634) -
Net impairment
gains on
portfolio
investments at
amortised cost
and real
estate
inventories 17,440 - 17,440 (17,440) -
Income from
real estate
inventories 118 - 118 (118) -
Income from 68,680 - 68,680 - 68,680 Income from
asset asset
management and management and
servicing servicing
Other income 292 - 292 - 292
---------------- ---------------- ---------------- ------------ --------------- ---------------
Total income
(1) 256,867 - 256,867 124,599 381,466 Cash income
Total operating Cash operating
expenses (174,077) 7,984 (166,093) 10,437(2) (155,656) expenses
---------------- ---------------- ---------------- ------------ --------------- ---------------
Operating Adjusted
profit 82,790 7,984 90,774 135,036 225,810(5) EBITDA
Net financing
costs (40,394) - (40,394) 3,554(3) (36,840)
---------------- ------------ ---------------
Profit before
tax 42,396 7,984 50,380 138,590 188,970
Taxation charge
on ordinary
activities (10,177) (1,704) (11,881) 2,790 (9,091)
Profit after
tax 32,219 6,280 38,499 141,380 179,879
================ ================ ================ ============ =============== ===============
(5,448) Capital
expenditure
(138,292) Replacement
rate (6)
36,139 Cash result
=============== ===============
(1) Total income is largely derived from income from portfolio
investments plus income from asset management and servicing, being
commission on collections for third parties and fee income
received. The other items add back loan portfolio amortisation to
get to core collections. Amortisation reflects a reduction in the
statement of financial position carrying value of the portfolio
investments arising from collections which are not allocated to
income. Amortisation plus income from portfolio investments equates
to core collections
(2) Includes non-cash items including depreciation and
amortisation, share-based payment charges and FX
(3) Non-cash amortisation of fees and interest
(4) The cash result is viewed on an underlying basis which
excludes certain items. These items have been excluded to provide a
more comparable basis for assessing the Group's performance between
financial periods
(5) This is the adjusted EBITDA for the business, which is a key
driver to the cash result. This measure allows us to monitor the
operating performance of the Group. See page 13 for detailed
reconciliations of adjusted EBITDA
(6) Replacement rate is the rate of portfolio investments
purchases, at our target portfolio returns, required over the next
12 months to maintain the 84-month ERC as at 30 September 2019
GLOSSARY
'Adjusted EBITDA' means profit for the period attributable to
equity shareholders before interest, tax, depreciation,
amortisation, foreign exchange gains or losses and adjusting
items.
'Adjusting items' are those items that by virtue of their size,
nature or incidence (i.e. outside the normal operating activities
of the Group) are not considered by the Board to be representative
of the ongoing performance of the Group and are therefore excluded
from underlying profit after tax.
'AMS' means asset management and servicing.
'Collection activity costs' represents the direct costs of
collections related to the Group's portfolio investments, such as
internal staff costs, commissions paid to third party outsourced
providers, credit bureau data costs and legal costs associated with
collections.
'Core collections' or 'core cash collections' mean cash
collections on the Group's existing portfolios including ordinary
course portfolio sales and put backs.
'Diluted EPS' means the earnings per share whereby the number of
shares is adjusted for the effects of potential dilutive ordinary
shares, options and LTIP's.
'Drydens' means Drydens Limited, a company incorporated in
England with company number 06765260.
'EBITDA' means earnings before interest, taxation, depreciation
and amortisation.
'EPS' means earnings per share.
'84-month ERC' and '120-month ERC' (together 'gross ERC'), mean
the Group's estimated remaining collections on portfolio
investments over an 84-month or 120-month period, respectively,
representing the expected future core collections on portfolio
investments over an 84-month or 120-month period (calculated at the
end of each month, based on the Group's proprietary ERC forecasting
model, as amended from time to time).
'Free cashflow' means Adjusted EBITDA after the effects of
capital expenditure, financing and tax cash impacts and before the
replacement rate.
'FVTPL' - means financial instruments at fair value with all
gains or losses being recognised in the profit or loss.
'IFRS' means EU adopted international financial reporting
standards.
'Gross AMS income' includes commission income, debt collection,
due diligence, real estate management, advisory fees and
intra-group income for these services.
30 September
2019
GBP000
Third party AMS income 68,680
Intra-Group AMS income 34,010
-------------
Gross AMS income 102,690
=============
'Gross income' includes commission income, debt collection, due
diligence, real estate management, advisory fees and intra-group
income for Asset Management and Servicing, total income for the
Investment Business and other income.
30 September
2019
GBP000
Third party AMS income 68,680
Intra-Group AMS income 34,010
-------------
Gross AMS income 102,690
Investment Business income 187,895
Other income 292
-------------
Gross income 290,877
=============
'Leverage' is secured net debt to LTM Adjusted EBITDA.
'LTIP' means the Group long-term incentive plan.
'LTM' means last twelve months and is calculated by the addition
of the consolidated financial data for the year ended 31 December
2018 and the consolidated financial data for the nine months to 30
September 2019, and the subtraction of the consolidated financial
data for the nine months to 30 September 2018.
'Net debt' means the sum of the outstanding principal amount of
the senior secured notes and asset-backed loans, interest thereon,
amounts outstanding under the revolving credit facility and
deferred consideration payable in relation to the acquisition of
portfolio investment, less cash and cash equivalents. Net debt is
presented because it indicates the level of debt after removing the
Group's assets that can be used to pay down outstanding borrowings,
and because it is a component of the maintenance covenants in the
revolving credit facility. The breakdown of net debt for the period
ended 30 September 2019 is as follows:
30 September 31 December
2019 2018
GBP000 GBP000
Cash and cash equivalents (97,828) (92,001)
Senior secured notes (pre-transaction fees net off) 928,046 935,567
Revolving credit facility (pre-transaction fees net off) 251,909 245,587
Asset-backed loans (pre-transaction fees net off) 93,098 -
------------- ------------
Secured net debt 1,175,225 1,089,153
------------- ------------
Deferred consideration - acquisitions 43,386 59,922
Deferred consideration - portfolios 31,293 12,031
Senior secured notes interest 1,379 5,542
Asset backed loan interest 129 -
Bank overdrafts 2,477 2,696
Other borrowings 3,384 11,635
------------- ------------
Net debt 1,257,273 1,180,979
============= ============
'NCI means non-controlling interest.
'ROE' means the return on equity as calculated by taking profit
after tax divided by the average equity attributable to
shareholders. Average equity attributable is calculated as the
average quarterly equity from Q3 2018 to Q3 2019 as shown in the
quarterly, half year and full year statements. In the comparative
period this is calculated as the average annual equity
attributable.
'Secured net debt' means the sum of the outstanding principal
amount of the senior secured notes and asset-backed loans, amounts
outstanding under the revolving credit facility, less cash and cash
equivalents. Secured net debt is presented because it indicates the
level of secured debt after taking out the Group's assets that can
be used to pay down outstanding secured borrowings, and because it
is a component of the incurrence tests in the senior secured notes.
The breakdown of secured net debt for the period ended 30 September
2019 is shown in net debt above.
'Underlying basic EPS' represents earnings per share based on
underlying profit after tax, excluding any dilution of shares.
'Underlying profit after tax' means profit for the year
attributable to equity shareholders adjusted for the post-tax
effect of certain adjusting items. The Group presents underlying
profit after tax because it excludes the effect of items (and the
related tax on such items) which are not considered representative
of the Group's ongoing performance, on the Group's profit or loss
and forms the basis of its dividend policy.
'Underlying ROE' represents the ratio of underlying profit for
the period attributable to equity shareholders to average
shareholder equity.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
QRTGGGQPGUPBGMG
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